UK households will find out in the next few weeks how much their gas bills are likely to increase this year.
The energy regulator Ofgem will shortly be announcing a new price cap – the maximum amount that suppliers can charge the ‘average user’ in Great Britain.
Experts fear this could rise by as much as 50% in April due to the soaring cost of wholesale gas and electricity around the globe.Brits are being warned for the first time ever that they should not fix their energy contracts as the deals available are so much worse than the standard tariffs.
Unsurprisingly, this has left many people worried about how to pay while struggling to understand exactly what is happening, how it will impact them, and what can be done to keep costs down.
Here, Metro.co.uk takes a deeper look at the issue and answers all your key questions on rising bills.
Why are energy bills rising?
Energy bills in the UK are rising for a simple reason – supply and demand.
Right now, there’s a lot of demand for gas as the cold weather sets in across the Northern Hemisphere at the same time as economies emerge from Covid-19 restrictions.
Boris Johnson has compared this sudden jump in demand to ‘everybody going to put the kettle on at the end of a TV programme’.
While demand is higher than usual, there’s tight supply at the moment for various reasons, including reduced production.
This all means that those selling gas wholesale can charge more for it.
Energy firms were going bust left, right and centre late last year, as wholesale gas prices skyrocketed.
This is happening all over the globe, but the UK has been particularly affected because we consume much more gas than many of our European neighbours.
According to the BBC, 85% of homes in the UK use central heating.
That’s a huge figure. We also don’t have a huge back-up store of gas available, either.
Since the energy suppliers have to pay these huge prices for wholesale gas, a big chunk of that extra cost falls on the consumer – aka your average household.
How much could energy bills go up by?
Luckily, there is a cap on just how much we, the consumer, can be charged for each unit of gas and electricity we use.
This was introduced by government regulator Ofgem (Office of Gas and Electricity Markets) in 2019 to stop providers charging rip-off prices to people not on a fixed deal.
The name ‘cap’ is something of a misnomer, as there is no upper limit to what you actually pay.
It’s the rates per unit that are capped, so if you use more energy, you’ll pay more, as MoneySupermarket.com explains here.
The cap applies only to customers who are on a standard variable tariff (SVT), typically a provider’s default and most expensive option.
You’ll be on this if:
- You’ve never switched your energy tariff.
- You were on a fixed deal, but haven’t chosen to switch again. I
- You were with a supplier that has gone bust
The cap is reviewed twice a year, in February and August, with the changes coming into effect in April and October.
Now that you understand how the cap works (hopefully), let’s move onto costs.
Suppliers were only able to charge up to £1,138 on their default tariffs between April and September 2021 based on a cap that was announced last February.
But that cap went up by a record amount in October 2021, when bills rose by 12% or £139 for millions of people.
Unluckily, the cap will go up again on April 1, 2022, and experts fear an increase of as much as 51%.
That would send household power bills in Britain soaring to an average of £1,995 per year.
If you think that’s bad, then it is important to bear in mind that these capped figures are based on the maximum unit price of energy charged to a SVT household consuming an average amount of energy.
Tl;dr: It is not the maximum amount every household will pay.
That means that if you burn a higher number of units than the average, your annual energy bills will be greater than this figure.
And many people are likely to be using more energy than average due to the increased amount of time spent working from home during the pandemic.
That brings us on to the next big question…
How to check that your energy bills are correctAmid all the worrying headlines about the energy crisis, there are some things you can do to reduce costs (and no, we don’t mean doing star jumps and cuddling your pet to stay warm…)
First things first, make sure you are paying the right amount. Your energy bill should reflect the amount of gas or electricity you’ve used.
That might sound obvious, but many people don’t provide meter readings, relying instead on their providers to send them estimated bills.
This could result in paying too much over summer, when your bill might be calculated on your average use during winter. It could also result in owing big chunks of money if your supplier initially underestimates how much you have used.
To keep your bills accurate, you should send your supplier a regular meter reading.
If you still think you are paying too much, Citizens Advice has some tips on what to do next.
Bills are likely to fluctuate over the year, going up in the colder months when you are likely to use more appliances that are expensive to run – such as the tumble dryer and heating.
Households are charged a set rate for each kilowatt-hour of electricity or gas they use, and it is this consumption that makes up the bulk of your bill.
Moneyexpert.Com has a handy calculator to determine how much energy you’re using at home, particularly through appliances, and how much it’s costing you.
Knowing this might help you keep costs down a little by reducing how much energy you use.
However that is easier said than done as the cold nights set in – and you may be better off switching providers in order to keep the costs down.
How to keep your energy bill prices down
At a time when the cost of living is already rising, a key question on everybody’s lips is how to keep energy prices down.
Since the price cap was introduced, the cheapest tariffs on the market have been mostly £200 or more cheaper.
Money Saving Expert Martin Lewis has previously advised that by switching and fixing tariffs yearly, you can lock in the lowest price for 12 months, protecting yourself against future price rises.
So in normal circumstances, switching is a good way to beat the price cap and save money.
But, these are not normal circumstances, and Mr Lewis says switching might not be the right thing to do at the moment.
For the last few months he has said that sticking to the cap has been the best move for most, as it has been cheaper than fixed energy deals.
But as we get nearer to the new price cap, is this still the best solution?
Should I switch energy suppliers right now?
Given the state of the market, there aren’t many (if any) better fixed tariff deals to snap up, so switching supplier probably isn’t the greatest idea.
Mr Lewis says that for most people, it is better to remain on the price cap in April, as the market’s cheapest fix right now is an average 56% more than the cap.
However for the first time in many months, fixing may be worth it for a few people.
Mr Lewis says that if you’re offered a fixed deal that’s no more than 40% expensive than your current price-capped tariff, it’s worth considering – especially if you value budgeting certainty.
To find deals, you can do a
cheap fix comparison here.However, it’s important to remember that this is based on the cap going up by 50% in April- the true figure won’t be announced until February 7.
The risk of fixing now is that if wholesale prices drop, you may lose out on a cheaper deal later down the year. Then again if you don’t fix now, and if prices rise, fixes could get even more expensive than current ones on offer and you’re stuck on a cap that is likely to rise further again in October.
Confused? You aren’t the only one.
Mr Lewis recently admitted being close to tears and shaking for being unable to offer advice on how to help people save for the first time in his career due to the energy crisis.
Unfortunately, there’s really not much we can do about this further increase to our energy bills.
Your best bet is to do nothing, and see what government measures to help offset these costs are announced in March.
Ministers are said to be considering giving one-off cash payments of up to £500 to people on the lowest incomes to help them cope with rising bills.
Economists say this is a simpler solution that other ideas reportedly under consideration, such as slashing VAT.
Business minister Kwasi Kwarteng has said the government is ‘trying to work out the best way to deal with what is a really, really serious problem’.
On Friday he told ITV’s Good Morning Britain that help is coming, but bill payers will have to wait until the Spring Statement in March to find out what extra support might be available.
If you are struggling to pay your bills right now, then contact your energy supplier to discuss a payment plan. It’s also worth checking if you are eligible for the warm homes discount.
In the meantime, you can follow this expert guidance on saving money on your energy bills.
Get in touch with our news team by emailing us at webnews@metro.co.uk.
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